Weekly Street Sentiment: Sellside is Bullish, Confident and Usually Right

|
 |  Includes: DIA, QQQ, SPY
by: First Coverage

WEEKLY STREET SENTIMENT (Monday, June 23rd)

  • Overall market sentiment increases by a dramatic 6.0%
  • Most bearish industry remains Financials
  • Most bullish industry remains Energy
  • Sell-side certainty surges over 24 points to 119%
  • Most active area for idea generation is Energy

WEEKLY COMMENTARY (Monday, June 23rd)

First Coverage Market Sentiment increased by a record 6.0% week-over-week heading into market open Monday. Energy remains the industry with the most bullish sentiment while Financials remain the most bearish for the seventh week in a row. The First Coverage Sell-Side Certainty Index (FCSSCI) surged over 24 points to turn positive once more and reach a level of over 119%.

LOOKING AHEAD…

We head into Monday morning riding the back of the single largest positive increase in market sentiment since we started keeping track of these indicators back in February.

Overall market sentiment increased more than 6% week-over-week demonstrating that last week, outside of the banks, sell-side professionals had started advising their buy-side clients to get back in the market and put capital to work on the long side.

Not only is the sell-side feeling bullish, they’re feeling confident – a dangerous combination if ever one existed. Their uptick in sentiment is coupled with a huge increase in sell-side certainty. More ideas are now being sent to the buy-side suggesting that they open new positions as opposed to reduce exposure or take money off the table.

If you’re curious, and who wouldn’t be, the last time a large increase in sell-side certainty combined with a large increase in bullish sentiment was on March 17th, 2008. That week, we saw a 9% increase in bullish Energy sentiment and a 58% increase in overall sell-side certainty. Those who heeded that call and immediately positioned themselves long energy did so at the exact bottom of a 3 month decline in the energy index and have profited by over 20% in the last 3 months.

It’s clearly too early to say if we’re in the midst of a true inflection point or merely an anticipation that the market is oversold after last week’s decline. Either way, there is no denying that the sell-side community on First Coverage has been remarkable in their ability to correctly anticipate short-term market movements.

That being said, this week’s call will be a real test of their wisdom vs. the bearish conventional wisdom. In fact, conventional wisdom is more akin to Ambrose Evans-Pritchard’s article from the Daily Telegraph in the U.K. where he wrote (and please don’t read this on a full stomach):

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyzes the major central banks…. A report by the bank’s research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as ‘all the chickens come home to roost’ from the excesses of the global boom, with contagion spreading across Europe and emerging markets….

Speaking of the Daily Telegraph, First Coverage was travelling through the United Kingdom this past week when we made two significant discoveries of our own:

  1. We learned that the English pound remains strong, large hats remain in style and London cabbies aren’t shy about telling you that half the country has been invaded by aliens. To clarify, and trust me we did, that is not slang for foreigners. They mean actual aliens… from another planet… running the country.
  2. Secondly, we learned that the vast majority of Londoners we came across believe that it is now much too expensive for people from London to live in London.

Twelve months ago, (the last time First Coverage visited the U.K.) there seemed to be a real belief amongst the locals that London was, without doubt, the present and future financial center of the world. That is no longer the case. Today frustration, more than optimism, is prevalent among the people of London along with a feeling, accurate or not, that the best days might be behind this city.

This only goes to show that even though we’re separated by an ocean, the pain from rising inflation, the current credit squeeze and devastating housing fallout are being felt in similar manners. Real estate, as they often say, is local, but digging out from under a real-estate bubble caused by easy credit and hampered by ‘commodities gone wild’ definitely seems to be global.

Until next week…

PREVIOUS SENTIMENT INDICATED…

On June 16th: ‘Financials continue their 6-week run as the most bearish industry...’

What’s happened since: The Financials lost over4.5% last week.

On June 16th: ‘…love the First Coverage user base had for a government subsidized consumer has evaporated over the last week ‘

What’s happened since: The Dow Jones Consumer Services Index declines almost 4.2% last week matching the biggest single weekly decline in all of 2008.